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If collecting public funds and as a result government consumption has become less distortionary as a result of a more efficient tax system, one would expect government consumption to grow rather than because of the lower marginal cost of collecting public funds makes spending easier.
Furthermore, setting goals for balancing in the absence of strong evidence may have the unintended consequence of creating new and different distortionary policies.
Nonetheless, agricultural protections are, in general, needlessly distortionary and harmful.
The estimated effect for the size of government sub-category is also somewhat larger with the fixed effects model while the estimated effect for the distortionary taxation sub-category is essentially unchanged.
It is generally believed that expenditure-based consolidations have a greater chance of success (Molnar, 2012) and it might be thought that if this argument informs post-crisis policy it would minimise harmful supply-side effects on growth by mitigating against distortionary tax increases.
Borenstein reports that subsidies to fossil fuels are not really that distortionary because they amount to only 0.
When the government has access to lump-sum taxes and transfers, redistributive policy need not resort to distortionary measures (such as capital taxes or inflation).
However, despite the wide-ranging scale of reform challenges in different societies, many countries in the mid-income world, which are undergoing significant political changes at the moment, will also need to privatize, remove distortionary subsidies, stabilize their public finances, and create space for the growth of the private sector.
In addition, the large implicit fuel subsidies are distortionary, increasingly unaffordable, and should be reduced.
Net economic gains are possible when these revenues are used to reduce or replace distortionary taxes placed on what are regarded as economic goods (as opposed to bads) such as labour and capital (Baranzini et al.
As most of the time, the tax rate is increased to finance the increments in public expenditure, the changes in marginal rate of taxation consistent with the changes in public expenditure would have distortionary effects and increase the welfare cost of taxation.